Toothpicks, Tinker Toys and Health-Care: the Non-Price Phenomena

One can not help but read media reports handicapping the Supreme Court’s decision regarding the individual mandate. Will it stay or will it go? Moreover, many of the reports describe a situation of ripple effects within the health insurance sector if only the mandate is struck down -or- if the mandate and certain sections are struck down such as state expansion of Medicaid (which was argued the third day) -or- the entire legislation of ObamaCare being struck down.

“After three days of historic Supreme Court debate, the political world and health-care companies confronted the prospect of President Barack Obama's health law being wiped away, a decision that would upend years of planning by businesses and roil the November elections.

Among those set to implement the law, insurers would have to ditch changes to their businesses designed to bring in millions of new customers. Provisions that have already gone into effect, including letting children stay on their parents' insurance plans until they turn 26, would no longer be required.

Companies facing the law's requirements would be reprieved, including health firms set to pay new taxes and businesses that would have been required to insure their employees or pay a fee.” - Health Care Ripples Outward, The Wall Street Journal, 03/29/2012 (1)

　

The point the media seems to miss is the underlying delivery system of health-care is the problem. That is, the underlying model is broken. The ripple effects in health insurance due to striking down ObamaCare is not the basic problem. That is, ObamaCare missed the target to begin with as it was a quasi-insurance plan based on coercion and a price fixing scheme that was supposedly going to “fix” the underlying model. Health insurance or quasi-health insurance, the changing of the insurance system thereof, does not change the underlying health-care system in any meaningful way. Thinking that a health insurance system based on coercion and price fixing is going to “fix” the underlying model is confused thinking.

Health-care has become the giant Barking Cat. Health-care is a decades in the making patch work of legislation directing health-care delivery, processes, and requirements that with each piece of government intrusion has merely created a health-care system that suits the sponsor and supporters of the each new piece of particular legislation. That is, each piece of legislation basically boils down to Milton Friedman’s famous quote of: "I would like to have a cat, provided it barked". (2)

The counter argument is the tried and true: it’s a complex issue, and experts say….. Uh huh. Right! Somehow, someway simple solutions can not occur in today’s world as everything from toothpicks to tinker toys are so extremely complex that only extremely complex answers are suitable.

One very simple solution, among several simple first step solutions, is to give the consumer of health-care a price signal. Are prices marked at the grocery store? At the discount store? At the department store? Does the auto body repair shop give you an estimate? Roofing estimates? Would you go shopping at the grocery store where prices are unmarked, then check out at the register with no sales slip, then have the unknown value of your purchase shipped off to a third party to pay because you pay a very high monthly premium to cover those unknown price items you purchase? Rather insane is it not?

　

The above scenario seems rather silly. Nay, nay! Think about it for a moment. Exactly where does the consumer go shopping where prices are not clearly marked or marked at all? Its called health-care purchases. The public has been duped into purchasing health-care with no price signal. Brilliant! The consumer would never go shopping at a store with no prices marked yet do it everyday in the health-care sector! Dupery at its best!

　

If one wants to know the price the general rebuff is “..can you put a price on your health?” -Or- you get the “complicated/expert” answer that knowing the price is too complicated as who knows what has to be done regarding tests, screenings, scans, etc.. Yes, you can’t get them to answer the price question as they don’t want you to know the answer to the price question. Why don’t they want you to know price? Because they don’t want to compete on price. More succinctly, the health-care industry doesn’t want to compete, period. It’s a special case where dupery through nitwitery reins supreme regarding “price”.


Notes:

(1) http://online.wsj.com/article/SB10001424052702304177104577310050863533554.html

(2) Barking Cats, Milton Friedman, Newsweek, 02/19/1973

http://www.johnlatour.com/barking_cats.htm

Barking Cats, Milton Friedman’s classic 1973 short essay

On an annual basis one should consider re-reading/reviewing Milton Friedman’s classic 1973 essay Barking Cats. This very short essay speaks volumes. It also identifies a constant/reoccurring phenomena that one can identify on nearly a daily basis.

The essay points out that broken economic models are many, many times perpetuated rather than removed. That is, “reformers” merely put forth notional propositions that if the broken economic model would merely produce X or Y results, results that are results the reformer desires [painting the world in one’s own self-image] then the broken model is magically fixed. In other words, the broken economic model is not broken if the broken model produces certain and particular results the reformer desires.

"What would you think of someone who said, " I would like to have a cat, provided it barked"? - Milton Friedman

Below is a link to the very short and very insightful Friedman essay:

http://www.johnlatour.com/barking_cats.htm

US Public Education: Wealth Accumulation Through Barking Cats

Milton Friedman wrote two important essays that one should be aware of:

(1) The first essay is The Role of Government in Education, 1955. In this 1955 essay was the birth of the school voucher proposition and the return of K-12 education to the private sector. Of Friedman’s many outstanding points within the essay was the observation that politicos through the mechanism of government, bestowing money on the institution rather than the student, creates the environment for financial shenanigans. By bestowing resources on the institution and not the student, the student is short changed as the student has not the freedom to choose what institution delivers education. (1)

　

(2) The second essay is Barking Cats, 1973. This essay dealt with a particular broken model known as the FDA [US Food and Drug Administration]. Friedman had written a prior essay [Frustrating Drug Advancement] which argued that the FDA does more harm than good hence abolish the FDA.

People wrote in:

“The column evoked letters from a number of persons in pharmaceutical work offering tales of woe to confirm my allegation that the FDA was indeed “Frustrating Drug Advancement,” as I titled the column. But most also said something like, “In contrast to your opinion, I do not believe that the FDA should be abolished, but I do believe that its power should be” changed in such and such a way – to quote from a typical letter”. – Milton Friedman, 02/19/1973 from the essay Barking Cats. (2)

　

“I replied as follows: What would you think of someone who said, " I would like to have a cat, provided it barked"? Yet your statement that you favor an FDA provided it behaves as you believe desirable is precisely equivalent. The biological laws that specify the characteristics of cats are no more rigid than the political laws that specify the behavior of governmental agencies once they are established. The way the FDA now behaves, and the adverse consequences are not an accident, not a result of some easily corrected human mistake, but a consequence of its constitution in precisely the same way that a meow is related to the constitution of a cat. As a natural scientist, you recognize that you cannot assign characteristics at will to chemical and biological entities, cannot demand that cats bark or water burn. Why do you suppose that the situation is different in the "social sciences?"

　

The point being, advancing conditional objections regarding broken models i.e. Barking Cats, is to say, the broken model is fine as long as you change this aspect and that aspect and then the broken model will work. Stated alternatively, the broken model will now miraculously work, as now, it fits my-your-they conditional objection I.e. a particular view of the world. That is, by painting the broken model in your own particular self-image somehow repairs the broken model.

Keeping Friedman’s afore mentioned essays in mind, consider the 300% real dollar [dollars adjusted for inflation] increase in spending that has occurred since the 1960’s regarding K-12 public education. Now consider that math, science, and language skill scores have remained flat or even declining during the same period of escalating spending. Dramatic increase in spending followed by not output enhancement. Four decades of escalating spending resulting in stagnate or declining test scores.

Many pundits, talking heads, and media types point to the declining test scores into two separate and distinct arguments:

(1) we need to spend more,

(2) we have wasted the spending as no appreciable enhancements to scores have resulted.

　

The question that rarely is asked is: where did the 300% real dollar increase in spending go if in fact scores are stagnate? Where’s Waldo?

Returning to Milton Friedman, one needs to examine “wealth” within Friedman’s Permanent Income Hypothesis. Wealth is defined as capital and human capital. Hence the 300% real dollar increase in spending did not appear to enhance the “wealth” of human capital i.e. the student. (3)

Hence we have a US K-12 public education system that that is directed by politicos who bestow resources on the institution rather than the student, a broken model in that US K-12 public education is producing abysmal results, a series of Barking Cat arguments over four decades, accompanied by a 300% real increase in spending.

Where is Waldo? If the increased spending did not appear as an enhancement to the “wealth” of human capital represented by the student, then the spending ended up in the educational delivery model [the institution and participants thereof]. Stated alternatively, the 300% real dollar increase in spending never reaches the student as the spending is absorbed for the benefit of the institution and participants thereof.

One might consider and ponder this proposition: wealth has been transferred from the student’s human capital to the institution and participants thereof. The spending has enhanced all participants for the exception of the student participants.


Notes:



　

(1) The Role of Government in Education, Milton Friedman, 1955

　

http://www.freerepublic.com/focus/f-news/1173402/posts

　

(2) Barking Cats, Milton Friedman, Newsweek, 02/19/1973


http://www.johnlatour.com/barking_cats.htm



(3) Permanent Income Hypothesis, Milton Friedman, 1957


http://ingrimayne.com/econ/FiscalDead/PermIncome.html

http://www.investopedia.com/terms/p/permanent-income-hypothesis.asp#axzz1hMGmRjQK